The Business Case for Flexibility

Contributed by:

The move to a low carbon economy coupled with rapid advances in technology and innovation are transforming electricity supply and demand. Grid agility and flexibility are essential as we move away from models of centrally dispatched generation and incorporate more intermittent renewable energy generation onto the system.

This flexibility can be provided in a variety of forms, from demand side response (DSR) and energy storage to new build gas generation. However, there is a clear merit order emerging in terms of both carbon and consumer cost of these offerings, and to enable this merit order to play out requires a technology-agnostic approach to the energy system, free of subsidies and long-term contracts that prevent these solutions from competing on an equal footing.

The National Infrastructure Commission’s Smart Power report signifies the concrete shift in thinking needed to unleash flexibility and shore up energy security for the UK. The conditions are right for innovation, and innovation is about being able to run systems effectively at tighter margins with no impact on reliability or risk through storage and invisible, automated and no-build DSR.

Demand response technology is, at its core, an intelligent approach to energy that enables aggregators to harness flexibility in our demand for energy to build a smart, affordable and secure new energy economy. True DSR technology invisibly increases, decreases or shifts users’ electricity consumption, enabling businesses and consumers to save on total energy costs and reduce their carbon footprints, while at the same time enabling National Grid to keep capacity margins in check. Although in its infancy, the UK’s demand side response market is a reality, delivering flexibility today.

Research by Open Energi, National Grid and Cardiff University published in October 2015 illustrates that smart demand side response technology can already meet the UK’s crucial grid balancing requirements faster than a conventional power station. Added to this, using new build gas to provide flexibility in a renewables-based system is counter-intuitive. DSR technologies are already working for the UK, providing flexibility to the UK grid at a far cheaper cost per MW than both batteries and gas.

This is precisely why National Grid has established its Power Responsive campaign as a framework for turning debate into action with a practical platform to galvanise businesses, suppliers, policy makers and others to seize the opportunity to shape the growth of demand side response collaboratively, and deliver it at scale by 2020.

It’s a well reported fact that electricity margins are tighter than they have been for a number of years, as illustrated by the NISM National Grid issued in late 2015. Knee jerk reactions to this are to incentivise infrastructure investment in power stations with long-term contracts, but this is inefficient and costly.

The £18 billion Hinkley Point project is a case in point. Looking at future demand curves, once the plant is up and running, there will be periods when its supply exceeds demand for power across the whole of the UK. The UK should capitalise on smart options for delivering flexibility which can be delivered faster and more cheaply than traditional infrastructure projects. Behind the meter solutions are much more empowering to consumers.

The conditions are right for innovation, and innovation is about being able to run systems effectively at tighter margins with no impact on reliability or risk. This is possible through storage and DSR. In this ‘year of innovation’, disruptors must be able to implement their solutions on a free-market basis, without guarantees and subsidies for certain technologies that block competition. To achieve flexibility goals, government must be technology agnostic.

US regional transmission organisation PJM provides a useful case study, with its real-time and near-term energy markets that incentivise the best and cheapest technology at any given time. PJM’s approach has seen a proliferation in innovative flexibility solutions accompanied by falling costs for customers. According to ABB, two thirds of the 62MW of storage deployed in the US in 2014 was located in PJM territory[1]. Market intervention is not necessary for energy system innovation to flourish. In fact, PJM shows that the opposite is true.

National Grid is already on the case with its Enhanced Frequency Response auction, which has seen 63 generators, energy storage companies and DSR aggregators pre-qualify to bid for contracts that will make it easier to manage the system. Demand side response is part of a wider energy market picture that must focus on flexibility and achieving the lowest cost for consumers. If just 5 per cent of peak demand was met with flexible power, the response would be equivalent to the generation of a new nuclear power station, without the huge costs to consumers.

Government needs to recognise that gas sits at the bottom of the flexibility merit order. Storage will undoubtedly play an important role, but Rudd’s pledge to explore long term storage incentives to get battery market moving are anti-competitive, not to mention unnecessarily costly for consumers.

DSR technology is already working today – not only to reduce electricity load at peak times, but also to increase load when demand is low and support National Grid’s second-by-second frequency balancing needs. And this is happening at both national and local scales.

2016 must be the year of flexibility and, to achieve this, we need consolidated markets that are technology agnostic. An energy department that styles itself as pro-innovation must send clear signals to innovators that it doesn’t pick winners.